I Squared Capital creates transatlantic telecoms network company

Telecoms updates

A newly formed transatlantic telecoms company is planning a “substantial” investment in expanding its network across Europe after completing a $2.2bn acquisition of assets owned by a struggling rival.

EXA Infrastructure has been established in London by I Squared Capital, the US private equity fund, on the back of the deal to buy infrastructure assets from GTT Communications. Industry veteran Martijn Blanken will lead the new business. 

The GTT deal is the latest in the “high-density network” side of the telecoms industry, which transmits huge amounts of data around the world and acts as a link between local telecoms networks.

The market boomed at the turn of the century, when companies including WorldCom, Global Crossing and Cable & Wireless spent billions of dollars building networks that were barely used. The huge rise in demand for data in the past decade has kicked off another boom and also driven a round of consolidation. CenturyLink paid $34bn to buy rival Level 3 in 2016, while Sweden’s Telia sold its international carrier network to local pension funds for €1bn last year.

GTT Communications built one of the largest transatlantic capacity networks after an acquisition spree that included the $2.3bn takeover of European stalwart Interoute in 2018 and the takeover of KPN’s international business in 2019 for $56m.

However, the US company accumulated a huge debt pile and its share price collapsed after it failed to publish results citing issues related to its costs and internal controls. It delisted its shares and said last month it was preparing to file for bankruptcy in order to restructure and focus on cloud services once it had sold its infrastructure division. 

I Squared Capital has traditionally been an investor in energy and transportation assets, including Britain’s Aggreko. It has now moved into telecoms, buying CK Hutchison’s cable business and Mexico’s KIO Networks in the past five years.

The GTT deal is its biggest yet and the newly formed EXA will be backed to invest in improving the assets it has taken on and looking for deals to boost its network, which consists of 103,000km of fibre optic cable connecting 300 cities, eight subsea cables and 14 data centres. 

Blanken, who worked for Australian telecoms company Telstra before he took the EXA role, said there was growing demand for high-density connectivity outside the major European financial centres of London, Paris and Frankfurt and he expected to invest in expanding the network further into northern and southern Europe.

However, he said that I Squared would not look to merge the business with its Asian and Mexican assets because it would create too big a company that could be difficult to sell in the future. 

He argued that other businesses in the capacity market had overstretched, which is why some had run into financial difficulties. “They’ve been too broad, doing too many things with too many products and services,” he said. “We are a dumb pipe but we are going to be a bloody good dumb pipe.” 

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